Submitted by: Jeff Daley
The Key To Comparing Loans:
Mortgage applicants are sometimes confused when they find out the annual percentage rate (APR) for a loan is higher than the quoted interest rate. The higher APR expresses how much the borrower is really paying for the loan – interest rate, points and most (but not all) loan fees – over the life of the loan.
Looking at the APR makes it easier to compare mortgages side by side. Only for example (current rates will vary), one lender may offer a 30-year mortgage for $100,000 at 5% with 1.5 discount points ($1,500) and $2,000 in fees. That stacks up to an APR of 5.316%. Is it a better deal than another lender’s offer of 4.75% with 2 points ($2,000) and $2,500 in fees? The second loan’s APR would be 5.153%, making it seem like the better deal. And it would be, providing the borrower owns the home long enough for lower monthly payments to recoup higher up-front costs.
The second loan would save the borrower $15.17 in monthly principal/interest payments. However, the borrower would have to own the home for almost 66 months (about 5.5 years) before savings would equal the higher cost of fees and points ($1,000 $15.17 = 65.92). A borrower who plans to sell sooner than 66 months would save money taking the first loan with the higher interest rate and APR but with lower up-front costs.
Lenders must disclose both the nominal interest rate and the APR on the “Good Faith Estimate” when you apply for a loan. That said, the APR will not account for closing costs such as title examination and title insurance premiums, nor fees for appraisals, document preparation or credit report. Application fees may or may not be included. You can run your own APR calculations at the website: www.TinyURL.com/d26hz6s.
– Scottsdale Real Estate | Luxury Valley Homes Arizona:
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About the Author: Jeff Daley (
) is a REALTOR and owner/agent of Luxury Valley Homes real estate.For more information, contact Jeff Daley at Luxury Valley Homes in Scottsdale, Arizona at 480-595-6412 or email us at (firstname.lastname@example.org).